Jessica Naraghi's bank, Royal Bank of Scotland, required her to take out an
interest rate swap to protect her from a debt she did not have

Amateur property investors are caught up in the growing controversy over the sale of complex interest rate swaps to small firms, it has emerged.

One budding investor – Jessica Naraghi, 23, from Bolton – ended up with an amortising base rate collar swap even though she did not take out the loan it was meant to protect.

Her decision, aged 19, to say ‘yes’ to Royal Bank of Scotland’s Global Banking and Markets salesman over the telephone has cost Ms Naraghi £73,000 and left her £36,000 in the red.

Loan documents show that NatWest, owned by RBS, required Miss Naraghi to purchase the capital markets product as a condition of securing her £472,000 loan in June 2008. It said a precondition of any agreement was that the bank was “satisfied with the customer’s interest rate hedging arrangements”.

“I wanted to purchase a commercial property,” said Ms Naraghi, who was advised by her property owning father about the merits of buying commercial real estate to generate a profitable return. “They agreed to give me a large loan but it did not go through. But they activated the swap two days before.”

The swap taken out on June 4 capped her interest rate payments at 5.5pc but only allowed them to fall to 4.5pc and meant that she paid more interest as Bank base rates fell in 0.5pc. The £16,755 fee was paid upfront.

When Miss Naraghi complained, she said she was told to keep paying because failing to do so would harm her credit rating. Later, in June 2009, when she instructed a solicitors firm, NatWest insisted that RBS was “in no doubt that the correct paperwork has been obtained, the correct procedures followed and a clear instruction given by Miss Naraghi to proceed with the transaction”.

Ian Settle, NatWest’s commercial banking director in Bolton, added: “Miss Naraghi chose to enter into a hedging instrument prior to drawing on the loan and it was also our customer’s choice not to drawn down on the loan.”

Letters from RBS Global Banking and Markets, however, suggest the paperwork was not complete. The bank wrote in October 2008 requesting “the formal trade confirmation” that it sent in June be signed and returned.

The bank said if it did not receive the paperwork “we will assume that you have approved the terms of the transaction as set out in the formal confirmation, unless you notify us of any objections that you might have with the next five London business days.”

Ms Naraghi said: “I never saw the man from RBS and he never explained to me that if rate goes down I have to pay a lot of money. He was ringing me constantly to take the swap. He had me under pressure to take it. But I never signed anything. It was all verbally, on the phone.”

As the interest payments increased she called a stop last year and paid a break fee to terminate the agreement. “I refused to pay any more and they terminated the agreement and took another £36,000 from my account for termination of agreement. My account is now £36,000 overdrawn and they are intending to take legal action against me,” she said.

RBS said it was invesitgating the complaint. “RBS has strict policies in place to ensure that interest rate swaps are sold properly,” a spokesman said. “We regularly carry out audits of our businesses to ensure our policies and procedures are robust, meet the relevant regulatory guidelines, and are followed by staff.”

The Telegraph has been inundated with complaints from small businesses since it first exposed examples of potential mis-selling in The Sunday Telegraph. Chip shop owners, publicans, farmers, family retailers, golf course operators, manufacturers and green grocers have all said they had been caught.

Some did not understand what was being sold to them and trusted their bank to act in their interests. Others said that purchasing swaps was made a condition of securing a loan but that the exit costs, which rose significantly when Bank base rates fell to 0.5pc, were not fully explained.

The banks have denied they were involved in wrongdoing.

Barclays has had to apologise to the Financial Services Authority after the investigation uncovered documents showing the bank had demanded that its clients withhold information from the City regulator.

The FSA said this was “unacceptable” and Barclays has agreed to write to all its customers affected to release them from the clause.

Barclays said: “We believe only a small number of customers would have been impacted by the error. Barclays will be contacting those customers to clarify the position.

“Barclays both recognises and values the importance of a transparent and open dialogue with regulators and customers throughout the complaints management process.”

The FSA has also launched a review of interest rate swap sales by the investment banking arms of the high street banks, following the supply of “new information” by The Telegraph. It said it will assess the “appropriateness of the product and how it was sold” to companies and individuals. “If we find widespread evidence of breaches or mis-selling we will take action,” a spokesman said. The Treasury has said it is monitoring the situation.

Guto Bebb, the Conservative MP for Aberconwy who has taken up the issue after being contacted by businesses in his constituency, called for a debate in the Commons during Business questions last week. Sir George Young, leader of Commons, replied: “There might be an opportunity for my Hon. Friend to raise this issue when the Financial Services Bill returns to the floor of the House having completed its committee stage.

“In the meantime I shall raise it with my Hon. Friends at the Treasury. I would say, however, that anyone who is thinking of investing in such products should take independent professional advice before signing any contract.”